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Did Hedge Funds Make The Right Call On Premier Inc (PINC) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Premier Inc (NASDAQ:PINC) and determine whether hedge funds had an edge regarding this stock.

Is Premier Inc (NASDAQ:PINC) a buy right now? Hedge funds were buying. The number of long hedge fund bets went up by 3 recently. Our calculations also showed that PINC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Steven Cohen

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to view the latest hedge fund action regarding Premier Inc (NASDAQ:PINC).

How are hedge funds trading Premier Inc (NASDAQ:PINC)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PINC over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is PINC A Good Stock To Buy?

The largest stake in Premier Inc (NASDAQ:PINC) was held by Renaissance Technologies, which reported holding $116.4 million worth of stock at the end of September. It was followed by Millennium Management with a $21.6 million position. Other investors bullish on the company included East Side Capital (RR Partners), Two Sigma Advisors, and Portolan Capital Management. In terms of the portfolio weights assigned to each position East Side Capital (RR Partners) allocated the biggest weight to Premier Inc (NASDAQ:PINC), around 2.58% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, designating 0.82 percent of its 13F equity portfolio to PINC.

As one would reasonably expect, key money managers have been driving this bullishness. Portolan Capital Management, managed by George McCabe, created the most outsized position in Premier Inc (NASDAQ:PINC). Portolan Capital Management had $5.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $1.4 million position during the quarter. The other funds with new positions in the stock are Hoon Kim’s Quantinno Capital, Michael Gelband’s ExodusPoint Capital, and Bruce Kovner’s Caxton Associates LP.

Let’s go over hedge fund activity in other stocks similar to Premier Inc (NASDAQ:PINC). These stocks are Kinsale Capital Group, Inc. (NASDAQ:KNSL), Foot Locker, Inc. (NYSE:FL), South Jersey Industries Inc (NYSE:SJI), and Marriott Vacations Worldwide Corporation (NYSE:VAC). This group of stocks’ market caps are closest to PINC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KNSL 7 24342 -4
FL 21 147084 -8
SJI 13 88904 -5
VAC 25 299416 0
Average 16.5 139937 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $191 million in PINC’s case. Marriott Vacations Worldwide Corporation (NYSE:VAC) is the most popular stock in this table. On the other hand Kinsale Capital Group, Inc. (NASDAQ:KNSL) is the least popular one with only 7 bullish hedge fund positions. Premier Inc (NASDAQ:PINC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately PINC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PINC were disappointed as the stock returned 5.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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Disclosure: None. This article was originally published at Insider Monkey.